This week I presented my ideas around Customer Driven Innovation in Commoditized Industries for an internal innovation summit of the Dutch/German energy company RWE/Essent Energy. Apart from the fact it was a very interesting event where Smart Customers, Grids and Cities were the talk of the town, it was good for me to think through parallels between energy service providers and financial service providers like Delta Lloyd Group (for whom I work; disclaimer: opinions expressed are my own here & I did not get paid or compensated in any way for presenting at the Essent event, nor naming them here on my blog).
In my talk I named four parallels that should raise the sense of urgency within both industries to start innovating. Here they are:
- Customers can think of a thousand better ways to spend their cash!
Let’s be frank. You need energy and you (mostly) must have an insurance policy, but because there is little choice involved, you probably wish you could do without.
- Customers do not notice the difference.
The other real big issue is that in both industries Customers do not see the difference between the products. And thus it’s price that seems to be the only differentiator.
- Governments are watching.
Both financial institutions and energy suppliers are considered critical to a countries economic (and social) infrastructure. Hence governments take a big interest in what we do, and how we operate. In Europe that tendency has been increasing over the past couple of years, with new legislation impacting both industries at an increasing pace.
- Customers can do it themselves (and they do so..)
More and more Customers start producing their own energy and even supplying some back to “the grid”. In insurances we see the same: small groups of people agree to put down a monthly premium and to pay out a certain amount if someone has a damage they’ve agreed to be insured. This is back to the basics of insurances.
Combine the four parallels and I think you’ll agree with me that their should be a high sense of urgency to innovate. I think the room agreed too, but that came as no surprise ;)
Three lenses for innovation
As I was told by the summit’s organization the innovation focus in the energy industry is mainly technology driven, I chose to provide them with three lenses for innovation that have little to do with technology, but have had great impact. These three are:
- Customer Jobs
I’ve written about this several times, so I won’t elaborate. I used the example of the Customer that doesn’t want a drill, but to hang a painting, and the example of how understanding Customer Jobs (using a laptop for internetbrowsing/access and e-mail mainly) resulted in a new growth market for home computing.
- Business Model
If you understand that Apple made their leaps in growth not through the invention of the Ipod, Iphone or Ipod, but through innovating the business models to fuel these devices, you understand the power of Business Model Innovation. And when you’re in a market where your Customers start producing energy (or insurances) for themselves, you know you need to find new ways (=business models) to earn money in the future.
- The Brand
A very good example of innovation around the brand is of course Zappos. Nothing sexy about selling shoes on-line, but if you make it your job to deliver happiness and do so by providing great Customer Service, you become one of the best known brands in the world, making good, very good money.
And with a little help from my good friend Erik Roscam Abbing from Zilver Innovation I put the three lenses in a model to show the audience that real value is to be found in combining the three types of innovation. It’s shown below. Let me know what you think!
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Continuing our twiiter thread, hopefully I can provide a bit of clarity. And assuming that, you can let me know your thoughts.
When I read your parallels that are driving the need for innovation in these industries, deregulation popped into my head. Historically here in the US, regulation, particularly in energy has created significant barriers to entry for new players in these industries. So, as a result there has been little incentive to innovate. Financial services has been ahead energy for sure in terms of product innovation, particularly in capital market (althoght some of that product innovation was not necessarily a good thing or a value creator). Increased competitive pressure is a foundational driver of innovation. Without it, the incentive and the desire to invest in innovation doesnt necessarily yield a return. Deregulate and increase competition and established players are driven to innovate or disappear.
So, while your #1 is true – customers need it but would rather do without. Deregulation drives a slight twist to that. In a regulated or monopolistic industry, you don’t have a choice of who you get it from.
Hope that makes sense.
And the model is very thought provoking. Thanks
Let me add to your post. The problem with commoditization of products is indeed that customers don’t see a difference between suppliers of the same or similar products. However, they don’t want to produce energy or insurance for themselves. They want their current suppliers to produce it with more sensitivity to them. Yes, they have a “job” to do but suppliers have to think expansively (beyond selling last year’s product) about how they can integrate with their customers. Yes, customers are looking for an alternative, but one that is centered on wanting a difference in the relationship.
Price erosion stems from getting stuck with a mentality that all you sell is a product and that there is very little you can do with that product. It also develops from the lack of creativity in understanding customer needs fully. In Walter Isaacsen’s biography of Steve Jobs, he recounted how Sony had the experience and skills to change the music industry when digital was becoming dominant, but that Jobs had the vision to anticipate customer needs and, therefore, left Sony far behind in the industry by introducing iTunes.
The antidote to commoditization is to be customer-centered, and to lead from a purposeful worldview which includes both product and service design innovation focused on better customer outcomes. When an organization thinks abundantly, there are hundreds of creative ways to proactively connect with customers.
Thanks for an insightful post.
that’s a good framework to balance technology-drive in the energy industry – as it is the case for many other (technology-oriented) industries. I agree with you that the starting point for innovation should be value for people and customers. Indeed, changing customer attitudes (e.g. environmental awareness, customization, cost control) trigger the need for new business models to create value.
Moreover, I think, in order to further meet already existing customer jobs – such as having sufficient and reliable energy supply available – in the long term and in face of resource and environmental restrictions, we need to put significant effort in developing new and improving existing energy technologies (smart grids, distributed generation, storage etc.). Available technology further determines the creation of new business models.
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